Thoughts on valuation / SP6 Sep 2021 21:08
The sp is up almost 150% from the lows of late August, but where to from here?
For me an interesting point is the Green / social responsibility language being used. This is typical for a company looking to promote itself to a lender or suitor. Therefore I do not see that the board are just taking investors for a ride, there is real substance to what they are doing and this must be advice from their various appointed advisers.
We also see today a NPV model valuing the company around 100p. This is based on many assumptions, many variables and having worked with the NPV models for 20 years, there can be huge variation in the results depending on the parameters used.
-They mention WACC for MC at 17% and that is huge, with higher discount rate used for a non operational project where resources need to be firmed up and a mining plan / infrastructure developed.
- The model does not include some of the resources such as Rhodium and also there is nothing built in for Rosgeo JV where allot of work is still need to firm up a resource, make the needed feasibility studies, mining plan and so on
- I do take these valuations with a pinch of salt therefore, also knowing that any buyer will want to keep some of that NPV for themselves rather than pay it all out to the seller.
Also the company must be playing at two possible scenarios. One is disposal of assets / entire business and the other is a massive fund raising and development of MC asset/flanks itself. This is a good way to do it as the message is given to the seller that if you are looking for a bargain here, we have the option to finance and develop ourselves. The preference would be for EUA to stick to what they have done well and that is exploration / development and give the actual mining to an entity who has done this succesfully for decades.
If I were looking to sell assets and realise value, then it would make sense now to sell out WK and MC where the project is operational (ramping up) or where BFS is around the corner at a time of strong commodity markets. I would not be looking to sell out on the Rosgeo JV but rather retain this to explore, develop the resource base for a future disposal, once risk has reduced and a lower discount rate applied for the WACC
No crystal ball here on where the sp could go, what deal is on the cards and so on. I do however see that EUA is at a stage of its development cycle where significantly more value can be extracted than what the current market cap is showing. Many risks for sure but with no risk no reward. I am happy to take the risk and hold EUA despite the recent surge in sp
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